The Winds of Change

The US Environmental Protection Agency (EPA) recently finalized regulations significantly changing the federal New Source Review (NSR) program. Large new sources of air pollution and ,under certain circumstances, major modifications to large existing sources, are subject to preconstruction review and permitting under the Clean Air Act. The new rules took effect in March 2003. The final rule improvements are the culmination of a 10-year regulatory process. During this period, EPA implemented pilot studies and worked with state and local governments, environmental groups, private sector representatives, academia and concerned citizens in an open and lengthy rulemaking process. Even with this broad involvement the new regulations remain controversial since opponent view the NSR process as the backbone of the Clean Air Act.

The goal of this article is to present the background and requirements of the new regulations. Because there are many variables pertaining to the implementation of the new regulations, including legal challenges and the incorporation into existing state regulations, it will be important for affected facilities to stay in close communication with their designated state environmental agency.

BackgroundUnder the NSR air permitting program, major new sources and major modifications at existing sources are subject to a complex, expensive and time-consuming set of legal and procedural requirements. The current federal NSR program dates back to 1980 when after litigation EPA adopted the fundamental elements of today's program. Under NSR, a new major source or major modification must employ state-of-the-art controls. These sources must also perform detailed atmospheric modeling to demonstrate compliance with the state and national ambient air quality standards. Sources must also perform modeling to ensure the protection of air quality related values in certain designated parks and wilderness areas. In areas that are not deemed in compliance with ambient air quality standards, offsets must be obtained that ensure a net regional air quality benefit. The entire process has extensive public involvement.

While historically it has been relatively straightforward to determine if a new source triggers NSR compliance requirements, determining whether a change at an existing plant has increased emissions enough to qualify as a major modification is much more difficult. It has also been the subject of much regulatory confusion. To determine if a change at a plant is subject to the federal NSR program, facility environmental managers must compare the plant's actual emissions before the change to the plant's "potential to emit" that will occur after the change is implemented. Depending on the process, this emission calculus can be difficult to make since the potential to emit is a theoretical quantity. To make the issue more complex, the affected facility also has to take into account all of the operations upstream and downstream of the process being modified to determine what impacts this change could have on potential to emit. This latter process is referred to as a "debottlenecking" analysis. In many cases, a small change that by itself would not be significant opens up NSR review because of the debottlenecking effect.

The potential implications of this calculus has caused many existing sources to be reluctant to make simple changes for fear of altering their potential to emit and triggering expensive . As a result, it has been argued that the old NSR program limited process improvements, the modernization of manufacturing, and in the case of utilities, more efficient energy production. Opponents also argued, that NSR likewise discourages proactive emission reduction technologies. Proponents believe that the NSR program has been successful and has resulted in large amount of air emissions being reduced since the regulation was implements.

While historically it has been relatively straightforward to determine if a new source triggers NSR compliance requirements, determining whether a change at an existing plant has increased emissions enough to qualify as a major modification is much more difficult.

In 1996, EPA proposed sweeping changes to the NSR program. 61 Fed. Reg. 38249 (July 23, 1996). On June 13, 2002, EPA Administrator Christie Whitman forwarded a report to President Bush discussing changes that EPA intends to make to the NSR program. After decades of defending the application of the NSR program to existing sources, EPA made a shocking admission. Specifically, EPA stated that in relation to existing sources, the NSR program "does discourage projects that improve capacity or efficiency but do not result in increases in actual air emissions." In a June 28, 2002 briefing, Jeff Holmstead, EPA's assistant administrator for Air and Radiation, stated that NSR has done more harm than good through its application to existing sources. He cited the perverse incentives that the program creates by penalizing sources that voluntarily reduced air emissions. Mr. Holmstead went on to say that while EPA recognized the benefits of applying NSR to new sources, no significant environmental benefit has been achieved by applying NSR to existing sources.

EPA's NSR Revisions
The new rule was promulgated in March 2003, and includes the following major changes to the NSR program.

Plantwide Applicability Limits (PALs): These limits are designed to provide facilities with greater flexibility to modernize their operations without increasing air pollution, facilities that agree to operate within strict site-wide emissions caps called PALs will be given flexibility to modify their operations without undergoing NSR, so long as the modifications do not cause emissions to violate their plantwide cap.

Pollution Control and Prevention Projects: In order to maximize investments in pollution prevention, companies that undertake certain specified environmentally beneficial activities will be free to do so upon submission to their permitting authority of a notice, rather than having to wait for adjudication of a permit application. EPA is also creating a simplified process for approving other environmentally beneficial projects. Current elements of the NSR program can actually hinder pollution prevention projects.

Clean Unit Provision: This provision is designed to encourage the installation of state-of-the-art air pollution controls. EPA will give plants that attain "clean unit" status flexibility in the future if they continue to operate within permitted limits. This flexibility is an incentive for plants to voluntarily install the best available pollution controls. Clean units must have an NSR permit or other regulatory limit that requires the use of the best air pollution control technologies.

Emissions Calculation Test Methodology: This change will provide facilities with a more accurate procedure for evaluating the effect of a project on future emissions. The final regulations improve how a facility calculates whether a particular change will result in a significant emissions increase and thereby trigger NSR permitting requirements. Also, in order to more accurately represent a facility's actual emissions before a change, to account for variations in business cycles and to provide a "bright-line" test for measuring pre-change emissions levels, industrial facilities will be allowed to use any consecutive 24-month period in the previous decade as a baseline, as long as all current emission limitations are taken into account. (This "baseline emissions" provision does not apply to power plants.)

Routine Maintenance, Repair and Replacement Exclusion: In December 2003, is a follow-up action to the NSR reform, EPA issued a proposed rule to make improvements to the "routine maintenance, repair and replacement" (MRR) exclusion currently contained in EPA's NSR regulations. These proposed improvements have been subject to a full and open public rulemaking process. At press time, the comment period was extended from March to May 2003. The genesis of the proposed regulation is that since 1980 EPA regulations have excluded from NSR review all repairs and maintenance activities that are "routine," but a complex analysis must be used to determine which activities meet that standard. This has often deterred companies from conducting repairs and replacements that are necessary for the safe, efficient and reliable operation of facilities, resulting in unnecessary emissions of pollution and less efficient, safe and reliable plant processes.

To increase environmental protection and promote the implementation of necessary maintenance, repair and replacement projects, EPA has proposed to revise the existing routine maintenance, repair and replacement exemption contained in EPA's regulations to make clear that two categories of activities automatically constitute routine maintenance, repair and replacement. The proposal puts forth a range of options for of each approach:

Annual Maintenance, Repair and Replacement Allowance: Provides for a facility-wide annual allowance for maintenance activities. Activities undertaken to promote the safe, reliable and efficient operation of a plant, which have costs that fall within the allowance, would constitute routine maintenance, repair and replacement. The allowance would be set on an industry-specific basis so as to cover the capital and non-capital costs that an owner or operator of a stationary source in a particular industry would typically incur in maintaining, replacing and repairing equipment at the source in order to promote the safe, reliable and efficient operation of the source.

Equipment Replacement Approach: This provision sets out that most projects involving the replacements of existing equipment with functionally equivalent new equipment would constitute routine maintenance, repair and replacement. That would be determined by comparing the cost of the components being replaced with the cost of replacing a production unit at the plant. If the cost of the replaced components were below a specified threshold, then the replacements would qualify as routine maintenance, repair and replacement. The threshold would be set so as to allow the replacement of components that are typically replaced at sources in the relevant industrial category in order to promote the safe, efficient and reliable operation of such sources, but would not include major renovations or rehabilitations.

Comments on the proposed maintenance, repair, and replacement exclusion provisions had to be submitted to EPA by May 2003.

Upcoming NSR Reforms
As part of the continuing regulatory reform process, EPA will soon be proposing additional changes and clarifications to the NSR process. Additional proposed changes include:

Debottlenecking: As mentioned previously, the debottlenecking concept has been the source of a great amount of criticism of the NSR program. Debottlenecking occurs under the federal program if a change to one part of the manufacturing process ends up speeding up another part of the process. The new proposed rule will clarify the definition of debottlenecking and as with MRR, will provide explicit guidance for regulatory applicability.

Project Aggregation:The final issue EPA has identified as a priority action item is to further examine when projects are aggregated. Currently, there is much confusion under the federal program as to when two unrelated projects at a source must be permitted as a single action. Historically, trying to permit consecutive projects within a finite timeframe to avoid NSR has been called "circumvention" and represented a violation of NSR intent. EPA has stated that it intends to develop draft rules that would clarify that individual projects need not be aggregated unless either (1) the projects are dependent upon each other to be economically or technically viable or (2) the projects were intentionally split to avoid NSR.

Planning for the Future
The changes included in the NSR reform package took effect on March 3, 2003. However, because the final rule has already been challenged in court, implementation is likely to be delayed. (This is reminiscent of the history of the new particulate matter (PM10) and ozone standards that were finalized by the agency, but were delayed in their implementation due to extensive litigation.) At press time, ten states have filed a legal challenge against the final rule in the U.S. Court of Appeals for the District of Columbia Circuit. The attorneys general of Connecticut, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont have referred to NSR reform as a "major weakening" of the Clean Air Act that will further degrade air quality in the Northeast and Mid-Atlantic states. The basic concern expressed in the litigation is that upwind, i.e. Midwest, emission sources will escape control under the new NSR program resulting in continued air quality degradation in the eastern regions of the country.

To determine if a change at a plant is subject to the federal NSR program, facility environmental managers must compare the plant's actual emissions before the change to the plant's "potential to emit" that will occur after the change is implemented.

Litigation aside, the implementation of revised NSR and the prevention of significant deterioration (PSD) program provisions will vary across the country. Under the Clean Air Act, before a company or utility can construct a major new source or carry out a "major modification" of an existing major source in an area that has attained the national ambient air quality standards (NAAQS), the facility or utility must obtain a permit unde the PSD program. Thirteen (13) states administer NSR by obtaining delegated authority to impose Part 52 regulations directly on sources under their jurisdiction. In these areas, revised preconstruction permitting changes will take effect at the same time the final rule takes effect. In contrast, most states have authority to administer their own NSR programs that must be based on (and at least as stringent as) Part 51 regulations. In these areas, revised NSR and PSD provisions will not be available to sources until the state adopts them into the individual State Implementation Plans (SIPs). While EPA is requiring that Part 51 authorities add the reform provisions to their programs, states will have until January 2, 2006, to do so. It is envisioned that many states will take the entire three years to adopt the new regulation into approved SIPs. In the latter case, this is one important consideration. States do have the right to develop air quality standards deemed stricter than federal requirements. In the case of NSR, it could be the case that some states keep their old programs under the premise that they are more stringent that the new NSR federal standards. In planning for the future it will be important to research the regulatory approach and orientation on a state-by-state basis. In short, affected facilities should stay in close communications with their state regulatory agency.

In summary the new NSR reform package is good news for industry. It offers more flexibility, will reduce regulatory oversight and decrease permitting delays associated with industrial expansion in this country. As with any new controversial program, however, facility planners and environmental professionals will have to carefully track how the program will be implemented over the next year.

Resources

U.S. Environmental Protection Agency's (EPA)Office of Air Quality Planning and Standards -- www.epa.gov/oar/oaqps